The real cause of income inequality

When management and stockholders pocket all the profits, the middle class falls further behind

Rat race
(Image credit: (Thinkstock))

If you're lucky enough to have a job, you probably work extremely hard. Thanks to the power of technology and successive waves of downsizing, people today are doing the work that it took two or three people to perform decades ago. Employees put in frequent 10-hour days to meet their bosses' demands, and often work remotely from home on nights and weekends. With productivity continually climbing, corporate profits have soared to all-time highs; the stock market gained more than $6 trillion in value in 2013. Yet Americans' real disposable income went up a mere 0.7 percent the same year. What happened to the workers' raises? Don't ask. Remember: You're lucky just to have a job.

It's this devaluing of middle-class workers, says economist William Galston in The Wall Street Journal, that more than any other factor has created the cavernous income gap between the wealthiest 1 percent and everyone else. The implicit contract that created America's postwar economic boom — in which loyal, productive employees got big raises when the company enjoyed big profits — has given way to a new ethos. Nearly all profits go to executives and stockholders; workers get tiny raises at most, along with a cut in benefits. This philosophy, Harold Meyerson points out in The Washington Post, got its start in the 1970s and '80s, when American business "abandoned its earlier stakeholder model," in which workers were valued partners. In the current "shareholder model," the only goal is to maximize profits and stock value. Until corporations get consciences or workers get more leverage, the income gap will keep widening. Got that? Now stop whining, you ingrates, and get back to work.

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William Falk

William Falk is editor-in-chief of The Week, and has held that role since the magazine's first issue in 2001. He has previously been a reporter, columnist, and editor at the Gannett Westchester Newspapers and at Newsday, where he was part of two reporting teams that won Pulitzer Prizes.